Hungarians most probably borrowed a record amount of money from banks last year, with credit driven by historically low interest rates and a spike in real estate prices. The volume of new housing loans jumped a spectacular 40% from a year earlier, driving household borrowing to historic highs.
According to central bank data for the first eleven months, Hungary's retail credit market likely had its strongest year ever in 2021. The single largest increase was recorded in the home loan market, but consumer credit also put in a strong performance throughout 2021.
The amount of new housing loan contracts increased by nearly 40 percent through the end of November 2021, reaching nearly HUF 1.2 billion. The volume of consumer loans grew at a more moderate pace of 6.7% year-on-year, climbing to HUF 1.143 billion. The dynamics of consumer credit slowed by the last months of the year and even a minor decline was recorded in November. The government’s unsecured, interest-free, general-purpose prenatal baby support loan closed its weakest months since its introduction in 2019, with new contracts worth HUF 37.6 billion, well below the HUF 49.7 billion a year earlier.
Jump in mortgage lending
Real estate brokerage firm Duna House’s estimates that banks placed more than HUF 1,300 billion in housing loans in 2021, 40% more than a year earlier. The value of loan transactions exceeded HUF 20 million for more than a third of housing loans granted in Budapest compared with an average of HUF 10-15 million in rural areas. The majority of mortgages had a term of 20 years. The second most popular alternative was 25 years, followed by 10 years. Analysts at Duna House noted that in Western and Eastern Hungary, a quarter of all the borrowers applied for the Family Housing Support Program (CSOK) in the fourth quarter of 2021, while in Budapest the share was 18.1%.
In a bid to help borrowers, the government decided to freeze the interest rates on retail mortgages at their October 27 levels. The law took effect at the beginning of 2022 and the freeze will be in place for a six-month period. Borrowers will see their monthly installment decline starting from February. The regulation applies to new mortgages, too. In average, the freeze will help households save HUF 11,000 per month. According to economic site Portfolio, the move affects roughly one third of the outstanding mortgages and will cost banks some HUF 30 billion in lost interest revenue.
Nevertheless, banking experts warned that the move might lead to a steep rise in repayment obligations once the freeze expires. Should such a scenario occur, banks face the risk of a massive rise in defaults once the regulation expires at the end of June. Markets see the three-month [Budapest Interbank Offered Rate] BUBOR level reaching 5.5% by June 2022, which would mean that the installment of an average housing loan will increase by 17%. In certain cases, a jump of 25-30% in monthly installments may occur.
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